Spousal Dividends via Umbrella Company – Can you pay your spouse one?

Spousal Dividends via Umbrella Company

What is the situation as regards spousal dividends and whether you can pay your spouse a dividend through an umbrella company?

HMRC quotes the following scenario:-

Mr U is a self employed IT consultant.

He reads an advert on a specialist website. As a result he decides to offer his services through a ‘composite’ company. This company is set up by another company specialising in taxation services.

Under an agreement, therefore, he will subscribe for a special class of share (a £1 ‘U’ share). This has rights to all his earnings less a ‘commission’ paid to its organisers.

Issuing Shares in Your Company

When the agreement is sent to him for signature there is a box to tick if he wants to issue a share to anyone else.

So, he ticks the box and ask to issue a share to Mrs. U.

Apart from subscribing £1 for the share, Mrs. U takes no part in the business.

Covers Expenses and Tax

During year 1 his efforts contribute income of £68,000 to the company. The company, therefore, retains sufficient to cover expenses and tax. So, the company pays the balance remaining of £54,000 to Mr. and Mrs. U as dividends who each receive £27,000.

This is a bounteous transaction. The settlements legislation (Section 660a) will catch this transaction.

In reaching this conclusion it is necessary to look at the whole arrangement. The substance of what has happened is that part of Mr. U‘s earnings have been paid to Mrs. U.

That’s how to look at spousal dividends.

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